FIFTH ANNUAL REPORT OF THE ONTARIO ENERGY BOARD YEAR ENDING DECEMBER 31, I964. ONTARIO TELEPHONE 365-2851 ONTARIO ENERGY BOARD 790 BAY STREET TORONTO Z January 29, I965. Sir: I beg to submit the Annual Report for I964 of The Ontario Energy Board, and I have the honour to be, Sir, Yours faithfully, ■-^fC^i^^*^ A. R. Crozier, Chairman. The Honourable J. R. Simonett, Minister of Energy and Resources Management , Parliament Buildings, Toronto, Ontario. INTRODUCTION The regulatory decisions and orders of the Ontario Energy Board are concerned with matters of greater economic significance, in terms of dollars and in terms of people affected, than is generally realized by the public. Moreover, the Board's concern does not end with the issuance of a decision or order, but in fact only begins. Since the Board has a continuous regulatory responsibility, it must continue to live with the consequences of every decision long after it has been handed down. To illustrate the extent of the Board's decisions, in the four major rate cases decided since September 1, i960, consumer rates were approved or fixed, involving annual gas sales revenues exceeding $91 million. The rate bases determined aggregated just under $270 million. As of September 30, I964, there were approximately 63^,600 gas customers in Ontario, Since the inception of the Ontario Energy Board in i960, many millions of dollars have been expended by Ontario gas utilities on the construction of pipe lines or distribu- tion systems, which could only be carried out after hearings for leave to construct pipe lines, or certificates of public convenience and necessity. A lesser amount, but still a con- siderable sum of money has been expended in the development of underground natural gas storage facilities. :o. • ■ -2- The Board's responsibilities with respect to "the public interest" consist, fundamentally, of balancing the several rights of the utility investors with those of the consumer, and in the case of storage operations, with those of the landowner. HEARING STATISTICS One of the main functions of the Energy Board is to fix and approve, after public hearing, the rates and charges for the sale, transmission, distribution and storage of gas in the Province. Other functions are the granting of leave to construct transmission pipe lines, authority to expropriate pipe line rights-of-way, authorization to store gas in designated areas, granting approval of the terms and conditions of by-law franchise agreements, and granting certificates of public convenience and necessity. In addition, the Board examines and reports on any matters relating to energy which may be referred to it by the Lieutenant Governor in Council or the Minister of Energy and Resources Management . During the year, the Board heard 23& applications, and held 56 Board meetings. The Board also devoted its attention to the writing of reasons for decision;- a report to the Lieutenant Governor in Council on gas storage matters; -3- drafting recommendations for amendments to the legislation and the preparation of rules of procedure and regulations under the new Act. The following is a breakdown of the hearings which have been held during the year: The Ontario Energy Board Act Rates (section 17) 16 Abandonment of service (section 21) 1 The Energy Act Leave to Construct pipe lines (section 11) 6 Expropriations for pipe line rights-of-way 205 Designation of gas storage areas (referred by Lieutenant-Governor in Council) 1 Unitization or Joining of Interests (referred by Lieutenant-Governor in Council) 1 Deepening of existing wells in designated gas storage area (referred by Minister) 1 Permission to drill wells in designated gas storage areas (referred by Minister) 7 In addition to the above hearings, several days of sitting were required to complete the 'Northern Ontario Natural Gas rate case which began late in I962 and the commencement of the Lakeland Natural Gas rate hearing which is still in progress „ -4- Throughout the year 253 applications were filed as compared with $7 in the previous year. Of these 23$ were heard, 15 were withdrawn and 1+ will be heard in I965. Each year the Board obtains from the transmission companies in the Province information pertaining to the footage and diameter of all transmission pipe lines owned and operated by them in any municipality. This data, which is used for assessment purposes, is then forwarded to the respective assessors of approximately eight hundred munici- palities . NORTHERN ONTARIO - TWIN CITY GAS RATE CA SE This was a joint application of Northern Ontario Natural Gas Company Limited, and its subsidiary, Twin City Gas Company Limited. None of the respondent municipalities t _ok any part in the hearing, although, from time to time, counsel for certain municipalities were present, and made oral representations. As stated in last year's Annual Report, this was one of the most complex rate cases the Board has yet encountered, presenting some entirely new regulatory problems. The record of evidence, covering over 500 pages of transcript, contains sworn testimony from nine expert witnesses, forty-two exhibits, and argument by counsel. -5- Based upon this record, the Board issued its Decision dated March 2, I964. The Board found that for the I96I test period, the Applicants earned a return of $2, 18$, 542 upon a year-end rate base of $35,722,197 which represents an experienced rate of return of 6.13 per cent. As noted in the Board's Decision, a review of the financial information for the subsequent two years, indicates that the experienced returns for those subsequent periods is still within acceptable limits, and accordingly, the Board decided that the rates applied for were just and reasonable. This Decision and Order, which runs to 2+1 pages, is in printed form and sets out in detail, the reasons for the Decision, and how the Board has treated such items as plant valuation, depreciation, working capital allowances, donations, income taxes, and other rate base and expense items. LAKELAND NATURAL GAS LIMITED RATE HEARING The application by Lakeland for an order approving or fixing just and reasonable rates for the sale of gas is some- what unique as it is the first application before this Board seeking the inclusion of an adjustment clause in certain rate schedules providing machinery for upward or downward rate adjust- ments related to variations in the cost of gas to the distributor, -6- Although all the respondent municipalities were served with the application and notice of hearing, none of them filed any answer to the application, or appeared, or was represented at the hearing, or in any way took part in any of the proceedings. In this hearing, as in Northern Ontario-Twin City Gas rate case, there are a number of complex regulatory pro- blems peculair to relatively new natural gas utilities. The hearing which commenced in June, I961+ and reconvened in August was adjourned sine die on August 28th to permit the company to prepare more information with respect to plant costs as requested by the Board. As in all major rate cases there is a complete transcript of the proceedings. It is expected that the hearing will be reconvened early in I965 and that the Board's written Reasons for Decision and order will be available in due course. GAS STORAGE REPORT With the growth in the use of partially depleted gas fields for the storage of natural gas in the Province and the dissatisfaction of the landowners with payments being made by storage operators, the Government directed the Board to investigate and report thereon. -7- Following meetings with landowners in Ontario and with several gas storage operators both in Ontario and in certain states in the U.S.A., and the examination of briefs, the Board filed its report which the Government released on August 6, 196^. The principles in the report are intended to serve as a guide to both landowners and storage operators in any negotiations or renegotiations of annual storage payments . Part 1 of the report outlines certain principles to be considered in arriving at the compensation to be paid for storage rights and a method of calculating the annual storage payments. Part 2 of the report sets out certain recommendations regarding the form and content of oil and gas lease agreements and gas storage agreements. It is to be hoped that the report will lead to the introduction and use of a new form of lease agreement . DESIGNATION OF GAS STORAGE AREAS An application by The Consumers' Gas Company for a regulation to designate a gas storage area was referred to the Board by the Lieutenant-Governor in Council. -e- The area in question covers approximately 17&2 acres and is located in Humberstone Township and is known as the Crowland Pool. Following a public hearing, the Board in its report to the Lieutenant-Governor in Council recommended that a regu- lation be passed designating the area as a gas storage area. A regulation was duly made, thus providing a potential storage capacity of approximately 750 million cubic feet for the use of Provincial Gas Company Limited a wholly owned sub- sidiary of The Consumers' Gas Company. CONSTRUCTION OF PIPE LINES Orders granting leave to construct l6o miles of transmission lines were made during the year. Four of the Orders were for replacement of old lines. Permission was granted to Tecumseh Gas Storage Limited to construct a 30-inch high pressure line to link the Tecumseh storage facilities in Moore Township to the Ontario Natural Gas Storage and Pipe- lines Limited transmission system. This line was built at an estimated cost of $1.5 million and will have a capacity of approximately 1 billion cubic feet of gas per day. ■9- By far, the major pipe line project was the construc- tion of the first section of a 12+2-mile 34-inch line undertaken and completed by Ontario Natural Gas Storage from its compressor station in Dawn Township, to the City of London branch line, a distance of 56 miles. Following three days of hearing, the Board granted permission for construction of the entire line which will be built in four stages at a total estimated cost of $22+. 5 million. There is provision that construction of the fourth stage from Hamilton to Oakville cannot be commenced without further approval of the Board. This 32+-inch line, which parallels a 26-inch line built in 1957, is essential to meet increased demands during winter peak periods and will carry gas for Ontario Natural Gas Storage and other Ontario utilities to and from storage facilities in Lambton County . EXPROPRIATION HEARINGS The Board held hearings in the City of London for the expropriation of 205 parcels of land along the route of the 32+" pipe line constructed by Ontario Natural Gas Storage and Pipelines Limited. Expropriation was necessary due to the failure of the applicant company and certain landowners to successfully negotiate an easement agreement. -10- It should be pointed out, however, that in pipe line expropriations the Board does not settle matters of compensation, which are referred to a Board of Arbitration appointed by the Minister under the Energy Act. In connection with the construction of the 3V pipe line the Government appointed an inspector specifically to ensure compliance with the terms and conditions outlined in the Board orders granting; authority to expropriate and leave to construct. Working closely with the Board and its staff the inspector functioned as a valuable intermediary between the Government, the company and the landowner. DRILLING IN DESIGNATED GAS STORAGE AREAS On reference by the Minister of Energy and Resources Management, the Board heard applications to deepen existing wells and to drill additional wells in the Dawn #156, Kimball- Colinville, Payne, Seckerton and Waubuno designated storage areas in Lambton County. Applications were made for the deepening of 6 wells and the drilling of 21 new wells within these areas . Following public hearings, the Board recommended that the permits should issue. -11- JOINING OF ROYALTY INTERESTS An application by BP Exploration Canada Limited for a regulation requiring and regulating the joining of various interests within a spacing unit in the Township of Gosfield South for the operation of an oil well was referred to the Board by the Lieutenant-Governor in Council. BP Exploration, the operator of the well, had been unable to reach an agreement for the sharing of royalty interests with the four lessors within the spacing unit. Following a public hearing in the City of London, the Board in its report to the Lieutenant-Governor in Council recommended the establishment by regulation of a new spacing unit and the joining of the royalty interests therein. The regulation was subsequently made. CHAMPION PIPE LI NE I NTERVENTION On October 15, I964, Champion Pipe Line Corporation Limited, a wholly-owned subsidiary of Northern Ontario Natural Gas Company Limited, applied to the National Energy Board in Ottawa, for a certificate granting it leave to construct and operate an 8-inch gas pipe line from Earlton, Ontario to a point in or near Rouyn, Quebec. The proposed pipe line would -12- transport gas belonging to Northern Ontario Natural Gas to another wholly-owned subsidiary, Le Gaz Provincial du Nord de Quebec Ltee for resale to the consumers of Le Gaz. A copy of this application together with certain supporting information, was served upon the Ontario Energy Board and the Attorney-General. The Attorney-General for Ontario intervened in opposition to the proposed arrangements under which this line would be operated. The Board and its staff assisted counsel for the Attorney-General in the pre- paration of the submission and Board staff were present at the hearing. The National Energy Board set the application down for hearing at Rouyn, Quebec on December 15, 16 and 17. Representations were made by the Attorney-General for Ontario, the Attorney-General for Quebec, Trans-Canada Pipe Lines Limited, and of course, the Applicant. Following the presentation of all evidence and examination of witnesses, the National Energy Board closed the hearing on December 17, and was pleased to reserve its decision, which is still pending. •13- LEGISLATION At the I964 Session of the Legislature, the Board recommended that The Ontario Energy Board Act be revised and up-dated in the light of experience in order to improve its administration. As a result, The Ontario Energy Board Act, I964, introduced as Bill i+7, received Royal Assent. Basic revisions in the new Act were the addition of an interpretation section, thus making the Act self-contained;- clarification of the Board's powers (sections 13, 15, 19 and 23); certain strengthening of the gas storage provisions (sections 20 and 22); the transfer from The Energy Act to Part II of the Act, of all sections pertaining to leave to construct pipe lines and authority to expropriate land therefor; amend- ment to the section dealing with an appeal to the Lieutenant- Governor in Council from Orders and decisions of the Board (section 33 ) • The new Act has been proclaimed in force as of January 1, I965. Accordingly, new regulations were made and these became effective simultaneously with the new Act. CONFERENCE OF CANADIAN PUBLIC UTILITIES COMMISSIONERS On October 1 and 2, representatives of nine Provinces met in Toronto to discuss utility regulatory matters of common -12+- interest. This conference was the second held in Ontario, and was presided over by Mr . A. R. Crozier, Chairman of the Ontario Energy Board. Technical papers were presented by delegates from the public utilities boards of other Provinces on regulatory treatment of income taxes and consumer rates. Full discussion took place of these and other related problems . It v/as unanimously agreed by all Provinces that the exchange of ideas and viewpoints at these Conferences produces results which justify the holding of future informal meetings . The I965 Conference will be held in the Province of Newfoundland. It is not proposed, at this time, however, to organize a Canadian counterpart of the National Association of Railroad and Utilities Commissioners, although some occasional contact with that American body may be helpful to the Provinces. PERSONNEL There has been no change in the membership of the Board and it has continued to operate with a full-time Chair* man and three part-time Members. The staff of the Board has been strengthened by the appointment of Mr. Ian C. MacNabb, P. Eng., as Board Engineer. He has had 11 years' experience in the natural gas industry with a major utility company.